Most people think they understand how interest works. You invest $100 at 10% then your annual interest payment is $10 a year. If you are investing for a fixed term, say three years, that will mean $30 in total interest payments. Simple math.

But with p2p lending it is different. This same $100 invested in a 36-month p2p loan at 10% will get you far less interest than $30. If we compare apples to apples and assume no service fees then this $100 investment will net you around $16.15 in interest, close to half the interest from the previous example. What gives?

P2P Loans Are Amortized

Are you really getting just over 5% or so annually on your money? No. The reason the total interest is less is because you are investing in a fully amortized loan. What this means is that with each payment you are being paid back some principal as well as interest.

Let’s continue our example to demonstrate. The monthly payment for your $100 loan at 10% is $3.23. Given a standard amortization schedule the first payment is split into $2.39 of principal and $0.83 of interest. So, your $100 investment has been paid down by $2.39 and the principal balance is now $97.61. S0, next month you will not receive interest on $100, you will receive interest on $97.61. Herein lies the big difference with amortized loans.

Below is the full amortization schedule for a $100 loan at 10%. Now, keep in mind I am ignoring service fees in this example – in reality at Lending Club and Prosper a 1% service fee is deducted with each payment.

If you have been reading my blog for a while you will have seen many, many references to the p2p lending statistics site Lendstats.com. I use it daily and I have done a great deal of research on Lendstats over the last 18 months.

But I have had a couple of emails lately from investors who feel a bit overwhelmed when they visit Lendstats and don’t really know how to get started. So, yesterday I recorded a video to help people get a feel for the site. The video is long at just under 15 minutes but I really only cover what I consider to be the essential pieces of Lendstats. Let me know what you think.

[Update: Lendstats no longer works for analyzing the Prosper loan history. There is a new site called Prosper Stats that provides even more functionality. You should read my initial Prosper Stats review if you are Prosper investor.]

[Editor’s note: This is the longest post I have ever done but I wanted to make this a comprehensive review of the Lending Club trading platform. I have included lots of sub-headings for easy skimming if you don’t have time to read the entire article.]

When Lending Club launched in 2007 there was no trading platform. There was no way to sell notes; once you invested in a loan you had to hold that note to maturity.

But then came the Lending Club quiet period in 2008. When they reopened in October 2008 after they had completed their SEC registration there were several changes to their platform. The investor notes were now considered securities, in a similar way that common stock is considered a security, so they could now be traded on a secondary market.

Selling Lending Club Notes on FOLIOfn

Lending Club chose FOLIOfn to manage their trading platform. This is the same company that manages Prosper’s trading platform but the program is run separately and you need to open up separate accounts on FOLIOfn for each platform. It is a very simple process to sign up for a trading account, it only takes a couple of minutes. Once signed up every time you click on the Trading Account link from your Lending Club account you will be taken to your FOLIOfn account. [Read more…]

This morning I awoke bright and early to do an interview about peer to peer lending with local Denver TV station 9News. Their business reporter, Gregg Moss, has taken an interest in the subject and asked if I would come in to the studio to do an interview at 5:40am.

So, there I was before dawn in their “Information Center” talking on the air about my favorite topic. The video is below and you can also see it along with a short article on the 9News site. We don’t go into any depth about p2p lending at all here, we cover just some of the basics in our two and a half minutes. But it is all part of my goal of spreading the word to the general population.

Every day I receive emails from readers with questions about peer to peer lending. Many of these questions turn into blog posts. But I have written over 100 blog posts now and I know that not everyone has the time to sift through all those old blog posts looking for an answer to their question.

So, I have decided to hold a free webinar. Here I will deal with all the common questions at one time. The focus will be on investor questions, I may do something for borrowers another time. I am also working on putting together a more extensive program that I will announce at the end of the webinar. Here are the details of the free webinar:

I have created a signup page here. You will also notice a bar running at the top of the screen here promoting the webinar. That will stay there until July 14th.

Space will be limited, I can only take 100 people, and seeing that it is free I expect it will fill up quickly. So, if you want to guarantee your spot then register now. And if you have specific questions you want answered let me know in the comments. I have still not finalized the entire webinar so I will try and address your questions.

I get a ton of questions from readers who are new to peer to peer lending. There really hasn’t been an up to date and independent resource available where people can find out about the basics of peer to peer lending. Well, now there is.

I have just finished writing a new ebook titled, Understanding Peer to Peer Lending. It is not really the encyclopedic volume suggested by the graphic, it is just 13 pages long, so it is a quick read.

The ebook is completely up to date with statistics that are current through the end of March. There is a lot of new content including sections about the history of p2p lending, why it is becoming so popular, and guides for borrowers and investors.

I intend to be updating this ebook every quarter so there is always an up to date resource for the many new people who want to find out more about peer to peer lending.

If you subscribe to the Social Lending Network via email you should have already received notice about the publication of this book. If you would like a copy then you can just fill out the email box at the top of this page. This will also subscribe you to the regular blog updates via email. Alternatively, you can just fill out the form below with your email address.

My last post here generated quite an in depth discussion among the readers of this blog. This got me thinking. Where else can people go to talk about peer to peer lending? Some companies such as CommunityLend in Canada have their own communities where you can discuss p2p lending. Zopa in the UK has an active forum with over 2,700 members, but in the US while Prosper used to have a discussion forum they closed it down several years ago and Lending Club offers no such platform.

Online Forums

There are two active online community forums where people can go to discuss any aspect of peer to peer lending. They are:

1. Prospers.Org – has the largest community of people interested in peer to peer lending at around 4,700 members as of this writing. It is a very active community with over 23,000 topics being discussed and more being added every day. One word of warning, though, before you go there. There are many people on this site who lost money in the early days of p2p lending and they have quite negative opinions about Prosper and to a lesser extent Lending Club. Having said that there are some incredibly smart people on the site who remain active investors and if you ignore the negative vitriol you can can learn a great deal. There are many categories on the forum, I focus on just four: General Prosper Chat, Prosper Lenders – General, General Lending Club Chat and LC Lenders. [Read more…]

Getting started with peer to peer lending can be a bit daunting for new investors. Lending Club and Prosper offer hundreds of loans to choose from and a myriad of ways for you to invest your money. Some people, eager to get started, jump out of the gate without thinking through their options and end up disappointed with their investment returns. The shrewd investor does some initial planning and research in order to get off to a great start. Here are a few points to consider to help you do just that.

Cherry Pick or Auto Plans

The first decision you need to make is whether you are going to invest in loans individually or go with one of the automated plans offered by Lending Club and Prosper. If you have a large amount to invest ($10,000 or more) I recommend you consider starting with an automatic plan or you can look at Lending Club PRIME if you prefer a completely hands off approach. If you choose to invest in loans individually, and this is really the only way to obtain above average returns, then you need to pay close attention to the points below. [Read more…]

For most people, lending their own money to strangers may not be an idea that exactly exudes confidence especially in this day of ongoing credit crisis. But social lending is becoming a more viable option for many, provided one can get over the initial idea of lending or borrowing money from their peers who are also likely strangers.

There are many social lending sites on the internet today and the popularity of those sites as well as new ones is certainly growing. As cash-rich lenders are matched with cash-needy borrowers, an agreement is established and both borrowers and lenders benefit from not having to go through a traditional bank, enabling for better negotiations for all involved. [Read more…]

When most individuals look for a loan, they traditionally turn to banks in order to gain access to the money they need. Lately though, banks are not giving loans as freely as they once had thanks to the recession woes the nation has been experiencing. Additionally, the process of dealing with a bank for a loan is a long and drawn-out process that takes time and can cost a lot of money in the form of interest charges. [Read more…]

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About Lend Academy

Lend Academy has been bringing you all the news and information about peer to peer lending since 2010. Founded by Peter Renton, Lend Academy not only has the most active news site, but also the largest online forum and the first and most popular podcast in the industry.

The Lend Academy team loves peer to peer lending and our staff have all invested their own personal money in one or more of the platforms. Lend Academy Media is part of Cardinal Rose Group which also owns LendIt, the leading industry conference, and has a majority interest in NSR Invest.